Siseko Njobeni
6 January 2009
Johannesburg — TOMORROW sees yet another drop in fuel prices, and South African motorists have the falling crude oil price to thank.
But joy at the plummeting oil price is not shared by everyone.
Oil and gas companies such as Sasol, PetroSA and Oando are happiest when the crude oil price moves in the opposite direction. The recent crude oil price rally -- touching a record-breaking $147 a barrel in July last year -- saw these companies laughing all the way to the bank.
In their respective reports in PetroSA's annual report, chief finance officer Nkosemntu Nika and the group's vice-president for new ventures (upstream), Everton September, partly attribute the company's good performance in the past financial year to the high crude oil price.
PetroSA reported a record R11bn in revenue. A weaker rand also contributed to this growth.
"The rise in oil prices has boosted PetroSA's profits. However, it has also contributed to aggressive competition for securing producing or near-producing assets as well as increased demand for limited exploration and development resources, pushing the cost of acquisition of assets to new heights," September said.
PetroSA has crude oil production fields including the Oribi and Oryx offshore oilfields.
Sasol, on the other hand, counts the crude oil price among what it considers key risks affecting its performance.
Sasol's Natref refinery in Sasolburg uses crude oil. So do some of the group's European businesses. Sasol Oil sells fuel that is determined by the government-regulated basic fuel price (BFP). The crude oil price is among the key determinants of the BFP.
When the crude oil price reached dizzy heights last year, Sasol was sitting pretty.
In her review last year, Sasol chief financial officer Christine Ramon said that "for budgeting and forecasting purposes", Sasol estimated that for every $1 a barrel increase in the annual average crude oil price, Sasol's operating profit for the current financial year would increase by about $51m. These are mouth-watering figures for Sasol shareholders. The only problem is that the crude oil price has since been in freefall, reaching new lows.
Repeated attempts by the Organisation of Petroleum Exporting Countries (Opec) to stem the slide by announcing production cuts are yet to produce the expected results.
So what happens to these companies now that the shoe is on the other foot?
Sasol has already indicated that it expected its profits in the current financial year to take a beating from the low crude oil price. Ramon last month told shareholders at the group's annual general meeting that the falling oil price would dent the company's profits.
Ramon told shareholders that the weaker rand would, however, reduce the negative effect of the falling crude oil price. A weaker rand works in Sasol's favour because the group's costs are rand-denominated while its income is mainly in foreign currency.
Economist Tony Twine of Econometrix said the falling crude oil price would hurt companies with large inventories of crude oil or finished products. "Every day that goes by sees those inventories worth less and less," he said.
Twine said when the price increases, Sasol finds itself in a favourable position. "It produces a set of products that are not dependent on crude oil for input, but the output products reflect the price that will be fetched by products derived from crude oil. So their margins escalate."
If international oil experts are to be believed, the depressed oil price is only temporary.
International Energy Agency chief economist Fatih Birol said oil may rebound to around $100 a barrel between 2010 and 2015.
Birol expects the price of crude to start moving up again in 2010. The slide in the price has been linked to the global economic slowdown that has driven demand down.
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